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The Department of Veterans Affairs building in Washington.

Rep. Derrick Van Orden, R-Wis., has introduced legislation to cap the number of direct loans that the Department of Veterans Affairs can repurchase at 250 through the Veterans Affairs Servicing Program for delinquent agency-backed home loans. (Stars and Stripes)

WASHINGTON — A mortgage bailout program that has kept more than 15,000 veterans facing foreclosure from losing their homes would be scaled back or ended under legislation sponsored by the chairman of the House Veterans’ Affairs Committee’s subpanel on economic opportunity.

Rep. Derrick Van Orden, R-Wis., has introduced legislation to cap the number of direct loans that the Department of Veterans Affairs can repurchase at 250 through the Veterans Affairs Servicing Program for delinquent agency-backed home loans.

Rep. Mike Bost, R-Ill., chairman of the House Veterans’ Affairs Committee, supports the legislation, which is a committee-led bill, according to Bost’s office.

Called VASP, the program is described as a last-resort option offered by the VA to borrowers in financial distress after they have exhausted other means through commercial lenders to stop foreclosures, according to the agency. Under the terms of the program, the VA purchases delinquent loans and modifies them.

Van Orden said the legislation — called the Restoring the VA Home Loan Program in Perpetuity Act — would reduce financial risks posed by VASP, which began in May 2024. He warned VASP could be a “trojan horse” that exposes the VA home loan program to fraud and abuse, affecting its long-term stability.

The VA home loan program was created under The Servicemen’s Readjustment Act of 1944, which became known as the GI Bill. More than 3.7 million veterans hold active home loans guaranteed by the VA, according to the agency.

But there are about 81,000 active-duty service members or veterans who have missed three or more payments on their VA mortgages, which would make them eligible for the program, according to figures from the Center for Responsible Lending and the National Consumer Law Center, nonprofit consumer protection groups.

Under the program, the VA purchases delinquent loans from commercial mortgage servicers and lowers the interest rate to 2.5%. The VA then adds the mortgage to its own portfolio of direct loans.

The average rate on a 30-year fixed loan was about 6% this week, according to BankRate, a consumer financial services company that surveys major lenders weekly.

Van Orden said he believes the mortgage bailout program could turn into an entitlement for veterans who are homeowners.

He said the program could entice veterans to fall behind on mortgage payments intentionally to qualify for the lower interest rate.

“My focus is to ensure that veterans remain in their homes whenever possible,” Van Orden said. “But I am concerned that this program could evolve into a financial burden of billions of dollars in bailouts that fall on the shoulders of taxpayers.”

He also introduced separate legislation called the VA Home Loan Program Reform Act that would create a partial claim program to help veterans catch up with their overdue mortgage payments while keeping the original loan.

A partial claim program would allow veterans facing financial hardship to defer missed payments without immediately facing foreclosure.

Bost also expressed support for the partial claim option as allowing veterans to recover financially while keeping their homes.

The Center for Responsible Lending and the National Consumer Law Center endorsed the idea of a partial claims program to help veterans regain their financial footing after falling behind on their payments without the VA absorbing the original loan.

The Veterans Affairs Servicing Program for VA-backed home loans was implemented when many homeowners fell behind paying their mortgages after the coronavirus pandemic ended. Some of the VA-backed home loans went into default after the VA ended a pandemic-era program in 2022 that let borrowers push their overdue payments to the end of their loan term.

The Mortgage Bankers Association has stated thousands of veterans would have lost their homes without VASP.

Under VASP, veterans do not apply directly for the special refinancing. Mortgage servicers submit requests on their behalf after reviewing all repayment options.

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Linda F. Hersey is a veterans reporter based in Washington, D.C. She previously covered the Navy and Marine Corps at Inside Washington Publishers. She also was a government reporter at the Fairbanks Daily News-Miner in Alaska, where she reported on the military, economy and congressional delegation.

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